Question

What problems do companies face when computing a lifetime value metric for its customer bases which is based on both past and potential future purchases?  

Answer 1

Solution:

Computation of lifetime value of a customer depends on various factors. However, businesses while computing the value of the customer consider only a few paraeters helpful in approximation of the lifetime value of the customers. HEnce, the estimates of lifetime value of the customers is an approximation without considering the external factors that may affect the lifetime value of the cusomer.

Also, the lifetime value calculation depends on the avering of the customer based on the generic data which may or may not be apprpriate for every consumer. ALso, the companies forget to add the cost of switching to the competitor while calculating the lifetime value. THis is the biggest factos that affects the calculation of the lifetime value because the customer who is with us may switch to the competitor if the quality of our service drops. Also, the factors that may affect the market and change the consumption pattern of the consumers is another reason why there can be discrepancies in the calculation of the lifetime value of the customers.

Hence, these are some real life example of how the lifetime value calculation of the customers can get affected because of the various external factors.